Japan May Face Fiscal Crisis in 15 Years, Komine Says

June 2 (Bloomberg) -- The Japanese government may suffer
fiscal collapse in 10 to 15 years if the ruling Democratic Party
of Japan maintains its expansionary spending policy, said Takao
Komine, a professor at Hosei University and former bureaucrat.

Even though “Japan’s fiscal conditions are very severe,
people were saying voicing such concern was like crying wolf,”
Komine, 63, said in an interview in Tokyo yesterday. “However,
since the wolf has appeared in Greece, people have started
worrying it may show up in Japan as well.”

Global scrutiny of sovereign debt has intensified as fiscal
deficits in Europe swell, a crisis Finance Minister Naoto Kan
has said the government needs to learn from as Japan’s public
debt approaches 200 percent of gross domestic product. Prime
Minister Yukio Hatoyama, who announced his intention to resign
today, plans to unveil a roadmap this month to restore the
nation’s fiscal health.

The yield on the benchmark 10-year government bond fell to
1.265 percent at 3:22 p.m. in Tokyo.

Komine, who spent more than 30 years as a bureaucrat
overseeing economic research and transport policy, said the
government should try to set specific fiscal targets, including
deadlines for their goals.

He also said Japan’s debt may exceed households’ financial
assets around 2020, causing uncertainty over whether Japanese
will be able finance government bonds. Foreign ownership of
Japanese debt was about 5 percent as of December, with the rest
held by domestic investors, according to the Bank of Japan.

‘Tipping Point’

“Japan’s finances may collapse eventually, but it’s a
story that may take 10 years or 15 years,” said Komine, who
also sits on a government committee that charts the economic
cycle. “But if the market’s trust is shaken, such a tipping
point will come earlier.”

The International Monetary Fund last month pressed Japan’s
government to pursue a credible fiscal program starting next
fiscal year, including increasing the 5 percent sales tax. Kan
has said that raising taxes could boost the economy if the
proceeds are used wisely, adding to signs the government may
consider increasing a levy on sales.

Komine said the European sovereign-debt problems probably
won’t spur the next global financial crisis. Japan’s economy
will likely continue to recover gradually, led by exports, he
said.

The Cabinet Office will hold a meeting next week to
determine when Japan’s worst postwar recession ended. Komine,
who sits on the panel, said the economy may have hit bottom “in
March or April last year.”